Contravention without knowledge
58Mr Brasnovic also alleges that Tara Electrical contravened s 155 "without his knowledge".
59There is no dispute that this issue requires an assessment of Mr Brasnovic's knowledge as at 20 January 2007 when Mr Samardzic was injured. It is also not disputed that the relevant knowledge is whether workers compensation insurance was required for Mr Samardzic, since the contravention is "in respect of a policy of insurance that would have covered the corporation for the liability" related to Mr Samardzic (see 145A(4)(a)).
60This issue raises the meaning of the phrase "without knowledge", and in particular whether Mr Brasnovic can be said to be "without knowledge" of the contravention if he ought to have known of the contravention or in some other respect had "constructive knowledge" of the contravention.
61The Nominal Insurer urged me to adopt the construction of my judicial brother, Judge Letherbarrow SC, in WorkCover Authority of New South Wales v Edwin Tucker and George McDonald [2012] NSWDC 226.
62In that decision, Letherbarrow DCJ considered such matters as the absence of the word "actual" in the provision (see [82] in Tucker), that the Court should not imply words into legislation without necessity (see [83]), the mischief the provision was intended to remedy (see [84]), the reversal of the onus of proof (see [88]), the need for paragraph (a) to have utility (see [89] and [103]), the use of the word "culpable" in describing a director (see [87]), the use of the equitable concept of constructive knowledge in construing legislation (see [90]), the reference in the second reading speech to "awareness" where a similar provision, s 156B, was spoken of, (see [91]-[93] and [106]), the legislative history of the Act (see [94]), the penal nature of s 145A (see [94]-[96], [100] and [101]) and the use of the term "actual knowledge" in North Sydney Council v Roman [2007] NSWCA 27, especially at [53] (see [99] and [109]).
63The absence of the word "actual" (at [112]), the object of the legislation ([113]-[114] and [118]) and the extrinsic material (at [115]), notwithstanding the penal nature of the provisions (at [116]), led Letherbarrow DCJ to conclude as follows ([120]-[121]):
"[120] Accordingly, I find that the word 'knowledge' as it appears in s 145A(5) and s 156B(4) of the Act is not limited to actual knowledge and includes, at least, knowledge of the type referred to in the first four categories described in Baden v Societe Generale (above), the fourth category of which I have already found that both defendants in this matter actually possessed. If follows that neither has discharged their onus under the sections and both are therefore liable for the agreed amounts claimed.
[121] I express no concluded view as to whether knowledge of the type which would be gained by the exercise of reasonable care and/or is within the fifth category described in Baden, also falls within the sections mentioned, not because it is to be excluded as a matter of construction but because it may be a form of knowledge not recognised under Australian law. Indeed, if it is so recognised, it would be my view that it too would fall within the sections discussed." [Underlining in original].
64His Honour appeared to conclude that the first four categories of knowledge are "recognised under Australian law" (see [121]), although his Honour did not attempt "to determine all the categories of knowledge, especially constructive knowledge, that are recognised in Australian law" (see [73]). His Honour's conclusion seems to be based on an acceptance that Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22 at [175]-[178] determined the categories of knowledge recognised under Australian law (see Tucker at [72]). His Honour recognised that Farah dealt with different circumstances, but concluded that it nevertheless provided guidance.
65In these circumstances, the correctness of this approach in Tucker depends upon the applicability of the decision in Farah.
66In what is conventionally referred to as the second limb of Barnes v Addy, a defendant is liable if the defendant assists a trustee or fiduciary with knowledge of a dishonest and fraudulent design on the part of the trustee or fiduciary (see Farah at [111], [160]).
67In Farah at [162] (see also [164]-[165]), the High Court recognised that the second limb may have been superseded by "accessory liability" espoused by the Privy Council in Royal Brunei Airlines Sdn Bhd v Tan Kok Ming [1995] 2 AC 378 at p 392, where the test of the assistant or participant was one of "dishonesty" rather than "knowledge"; the Privy Council stating, "'[k]nowingly' is better avoided as a defining ingredient of the principle". Notwithstanding this recognition, the High Court (at [163]) directed Australian courts to apply the second limb of Barnes v Addy given its acceptance in Consul Development Pty Ltd v DPC Estates Pty Ltd [1975] HCA 8; (1975) 132 CLR 373. Accordingly, "knowledge" remains a "defining ingredient", so far as this Court is concerned in respect of assisting in a dishonest and fraudulent design on the part of trustees.
68The High Court in Farah recognised (at [174]) that it was:
"customary to analyse the requirement of knowledge in the second limb of Barnes v Addy by reference to the five categories agreed between counsel in Baden v Société Générale pour Favoriser le Dévelopment du Commerce et de l'Industrie en France SA"
namely (at [174]):
"(i) actual knowledge; (ii) wilfully shutting one's eyes to the obvious; (iii) wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make; (iv) knowledge of circumstances which would indicate the facts to an honest and reasonable man; (v) knowledge of circumstances which would put an honest and reasonable man on inquiry."
69Although the Privy Council in Royal Brunei doubted the utility of the categorisation, the High Court found that these categories "assist" on the question of "knowledge" for the second limb of Barnes v Addy (cf the Full Federal Court decision in Grimaldi v Chameleon Mining NL (No 2); Chameleon Mining NL v Murchison Metals Ltd (2012) 200 FCR 296; (2012) 287 ALR 22; (2012) 87 ACSR 260; [2012] FCAFC 6 at [259]-[260] and Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) (2012) 270 FLR 1; (2012) 89 ACSR 1; [2012] WASCA 157.
70Importantly for present purposes, Peter Gibson J in Baden Delvaux & Lecuit v Societe Generale pour Favoriser le Development du Commerce [1992] 4 All ER 161 at p 232 [241] appeared to accept the submission that "Lord Selborne LC's statement of the principle should not be treated as though it were the words of a statute". The consequences of so doing explored in Royal Brunei [1995] 3 All ER 97 at p 103:
"Their Lordships venture to think that the reason is that ever since the Selangor case highlighted the potential uses of equitable remedies in connection with misapplied company funds, there has been a tendency to cite, interpret and apply Lord Selborne LC's formulation as though it were a statute. This has particularly been so with the accessory limb of Lord Selborne's apothegm. This approach has been inimical to analysis of the underlying concept. Working within this constraint, the courts have found themselves wrestling with the interpretation of the individual ingredients, especially 'knowingly' but also 'dishonest and fraudulent design on the part of the trustees', without examining the underlying reason why a third party who has received no trust property is being made liable at all."
71A similar point was made by the Hon William Gummow AC in (2013) 87 ALJ 311 at 311.5.
72I do not think it can be disputed that I should avoid treating Lord Selborne's statement as if it were the words of a statute. The same might be said of counsel's categorisation recorded by Peter Gibson J in Baden. But in this case I am asked to treat these judicial pronouncements on a particular area of equity as governing the words of this statute, the Workers Compensation Act 1987.
73There is no basis to support this approach. In my view, it is an unwarranted extension of the doctrine in Farah, for it is clear that the High Court regarded the tests of knowledge it adopted in Farah as applicable only to assistance in a fraudulent beach of trust:
"the five categories found in Baden assist in an analysis of that for which Consul provides authoritative guidance on the question of knowledge for the second limb of Barnes v Addy" (at [175], emphasis added)
and "the categorisation was often helpful...for the purposes of a knowing assistance case" (at [174]).
74The High Court recognised that Lord Selborne's statement was not exhaustive in respect of participants in a breach of trust (see Farah at [161]). This militates against applying it as the governing principle in an unrelated area involving the construction of s 145A(5)(a) of the Workers Compensation Act 1987.
75In my view, the Farah decision is not concerned with the knowledge mentioned in s 145A and any other statutory reference to knowledge. The decision is altogether more limited in scope. It is concerned with the meaning of knowledge in the second limb of Barnes v Addy (see [171]), with the level of knowledge of dishonest conduct by a trustee or fiduciary that is sufficient to ground liability. It does not enter at all into the arena of statutory construction. The High Court recognised that the first limb might be limited to trustees (Farah at [113]) whereas the second limb extends to breaches of fiduciary duty (Farah at [179]). There is no suggestion in Farah, and no authority that I can find, that supports the extended meaning of knowledge in the second limb of Barnes v Addy as being the meaning of knowledge in all statutes or in the Workers Compensation Act 1987, or in s 145A thereof.
76In this case I am concerned with the proper meaning of "knowledge" in the context of an absence of knowledge of a certain fact (namely, a particular contravention). It seems to me to be circuitous and unhelpful to assess this by means of "knowledge" of other facts.
77It follows that I think the High Court decision in Farah has no application to the present case.
78The Macquarie Dictionary lists the following definitions of knowledge:
"knowledge
...
noun 1. acquaintance with facts, truths, or principles, as from study or investigation; general erudition.
2. familiarity or conversance, as with a particular subject, branch of learning, etc.
3. acquaintance; familiarity gained by sight, experience, or report: a knowledge of human nature.
4. the fact or state of knowing; perception of fact or truth; clear and certain mental apprehension.
5. the state of being cognisant or aware, as of a fact or circumstance.
6. that which is known, or may be known.
7. the body of truths or facts accumulated by humankind in the course of time.
8. the sum of what is known.
9. cognisance of facts, or range of cognisance: this has happened twice within my knowledge.
10. Archaic sexual intercourse, now preserved in the legal term carnal knowledge.
-phrase 11. to one's knowledge,
a. according to one's certain knowledge.
b. (with a negative) so far as one knows: I've never seen her, to my knowledge.
[Middle English knowleche, from know]".
79The Oxford English Dictionary includes such definitions as:
"1. Acknowledgment or recognition."
"2. Law (orig. and chiefly SC.). Legal cognizance;"
"The apprehension of fact or truth with the mind, clear and certain perception of fact or truth; the state or condition of knowing fact or truth."
"The fact or state of having a correct idea or understanding of something; the possession of information about something."
"out of (a person's) knowledge.
a. Out of all recognition; (so as to be) unrecognizable."
"to a person's knowledge: (a) as far as a person is aware; = to the best of a person's knowledge"
80When used in the context of knowledge of a fact or circumstance, it seems to me the closest meaning is awareness, in this case awareness of a contravention. There is some support for awareness in the Tucker decision at [92] where the similar test created by s 156B(4) was described as creating a liability where directors "were aware" of certain matters.
81I do not see any strength in the argument that if actual knowledge was intended the word "actual" would have been used. That argument would equally support the submission that if constructive knowledge was intended, the word "constructive" would have been included.
82In Yorke v Lucas (1985) 61 ALR 307, the meaning of the words in s 75B of the Trade Practices Act 1974 (Cth), including the phrase "knowingly concerned" were considered. Although this is a different grammatical form of knowledge, I consider that it gives some assistance. "Knowingly concerned in...the contravention" required actual knowledge of the essential elements constituting contravention and intentional participation in it: Yorke at p 313. Applied to this case, Mr Brasnovic would be "without knowledge of the contravention" if he did not have actual knowledge of the essential elements constituting the contravention, namely, the absence of insurance covering Mr Samardzic and the obligation to have insurance covering Mr Samardzic. Mr Brasnovic took no issue with the first element. He knew he did not have insurance covering Mr Samardzic. But he says he did not know that he was obliged to have insurance covering Mr Samardzic because he believed Mr Samardzic to have been an independent contractor.
83Similarly, knowingly authorised or permitted the contravention in s 175B of the National Parks and Wildlife Act 1974 required actual knowledge: Director-General of National Parks and Wildlife v Schultz (Land and Environment Court of New South Wales, Bignold J, 24 October 1996, unreported) cited in Tucker at [94]).
84In State Pollution Control Commission, the Land and Environment Court considered a provision similar to the present case, save that paragraph (a) concluded with the words, "without the knowledge actual, imputed or constructive of the person" [my underlining]. This provision also dealt with the liability of a director for the contravention by the company, a situation similar to the present case. The inclusion in the provision of the additional words is some support for the proposition that if Parliament had intended to impose the same liability in this case, the same words could and would have been used.
85It may be said that North Sydney Council v Roman [2007] NSWCA 27 at [51] indicates the contrary position. That case concerned the use of the adjective "actual" in s 45 of the Civil Liability Act 2002. But that provision affected the existing law which countenanced constructive knowledge, and thus the circumstances demanded the express mention of "actual knowledge". That case was not concerned with the liability of a director for a contravention by a company and the terms of the provision are quite different from those in s 145A(5).
86I have not been referred to any decision, apart from Tucker, where the use of "knowledge" simpliciter in a statute has been read as including constructive knowledge or constructive notice. For a contrary example, see Bloomfield v Williams [1970] Crim LR 292, where signing a false document without reading it was held not to fall within the phrase "which to his knowledge is false".
87Moreover, I respectfully agree with Tucker at [116] that the liability imposed upon the director under s 145A is "of a penal nature". This is an additional reason why it is appropriate to be cautious in construing s 145A as extending beyond actual knowledge.
88In assessing what is meant by "knowledge" Basten JA, in a judgment agreed to by the other members of the Court of Appeal, stated in Baker-Morrison v State of New South Wales [2009] NSWCA 35 at [45]:
"s 50D refers, somewhat simplistically, to whether the person 'knows' (or ought to 'know') the identified facts. It is rare that facts will be known in any absolute sense: rather, as a practical matter, the person will have a belief that certain matters can be established, usually on the balance of probabilities, which is sufficient for the purposes of legal proceedings. Such a belief may be held on firm grounds or on shaky grounds. The belief is likely to involve an assessment of various matters, none of which can be readily quantified. Questions involving causation, fault and assessment of damages are all susceptible to these kinds of uncertainty. Nevertheless, the chapeau of the subsection refers to knowledge of identified facts, and not to an assessment of prospects of success in the prospective proceedings".
89This passage supports the view that in assessing the "knowledge" of Mr Brasnovic, it is his subjective belief that is important.
90Earlier in this judgment I noted that there was no bright line distinction between employees and independent contractors. In deciding that Tara Electrical was liable to reimburse WorkCover for compensation paid to Mr Samardzic, the Commission's reasons (Tara Electrical Services Pty Ltd v WorkCover Authority of New South Wales (Workers Compensation Commission, Faye Robinson, 23 January 2012, unreported)) refer to the decision of On Call Interpreters & Translators Agency Pty Ltd v Commissioner of Taxation (No 3) [2011] FCA 366, where Bromberg J stated that "the totality of the relationship" is to be considered and a "range of indicia may be examined".
91Bromberg J also noted (at [219]) that:
"Whether or not income tax has been withheld and whether annual, long service or sick leave is afforded are often also used as relevant indicators"
and that there "are differing views as to the inference which should be drawn from such arrangements".
92The Commission referred to passages in Hollis v Vabu Pty Ltd (2001) 207 CLR 21 as follows:
"...the distinction between an employee and an independent contractor is rooted fundamentally in the difference between a person who serves his employer in his, the employer's, business, and a person who carries on a trade or business of his own"
and to the comment in Australia Air Express Pty Ltd v Langford [2005] NSWCA 96 at [55] where the fact that the person was not a PAYG employee was a significant factor in favour of a conclusion that the person was an independent contractor.
93These comments do not suggest that Mr Samardzic's position as an employee rather than an independent contractor was at all times obvious and unarguable.
94Ultimately, the Commission determined that Mr Samardzic was a worker, alternatively a deemed worker. The Commission's decision included a finding that:
"it is not disputed that Mr Brasnovic imposed these conditions of employment as a facade to enable him to allege that Mr Samardzic was an independent contractor and not an employee. In other words he was endeavouring to disguise the relationship" (at [29]).
95The plaintiff did not rely on this finding as creating some form of estoppel or that it carried any weight in the matters to be decided by me. Neither party before me was a party in the Commission's proceedings and it is doubtful whether that finding is sufficiently fundamental to the decision so as to give rise to an estoppel in any event. The context of this finding, or any concession by Mr Brasnovic, was not explored in the evidence. In those circumstances, I do not propose to give this finding any weight.
96The question for determination is whether in January 2007 Mr Brasnovic believed Mr Samardzic to be an independent contractor because of the conditions on his retainer which Mr Brasnovic had imposed, or alternatively whether Mr Brasnovic believed Mr Samardzic to be a worker or deemed worker, notwithstanding those conditions, which were imposed only as a facade to hide the true position of Mr Samardzic as an employee.
97The Nominal Insurer submitted that actual knowledge of the contravention is established by Mr Brasnovic's failure to obtain workers compensation insurance for himself. I do not think this is probative. It may be a contravention, but it is not the relevant contravention that enables recovery for the compensation paid to Mr Samardzic. In any event, I accept Mr Brasnovic's evidence that as at January 2007 he did not believe, as a sole proprietor of Tara Electrical, that he needed workers compensation insurance for himself.
98The Nominal Insurer also relied upon the payment of some of Mr Samardzic's medical bills by Mr Brasnovic, and the nature of the work provided by Mr Samardzic. The payment of the medical bills may indicate a belief of some moral responsibility in Mr Brasnovic, but I do not think it constitutes an admission of knowledge that workers compensation insurance was necessary. The nature of the work done by Mr Samardzic is, for the purposes of these proceedings, accepted by both parties as requiring Tara Electrical to obtain workers compensation insurance to cover Mr Samardzic. But that does not establish that Mr Brasnovic had such a belief at the time of Mr Samardzic's injury.
99In my opinion, the steps Mr Brasnovic took to have Mr Samardzic regarded as an independent contractor is some evidence that he believed these steps were sufficient. If he did not so believe, there would be little purpose in taking them: for they could not prevent his company from suffering the consequences of contravening the Act.
100It was established that Mr Brasnovic never sought advice about whether Mr Samardzic was a subcontractor. This supplies some limited support that Mr Brasnovic believed this to be so. If he believed to the contrary, he would be more likely to seek advice about the consequences of his relationship with Mr Samardzic, especially on the two occasions that he consulted accountants.
101In my view, as at January 2007, and without the benefit at that time of the Commission's decision, the employee status of Mr Samardzic was not altogether clear. The different judgments in Hollis at trial in the Court of Appeal and in the High Court indicate that reasonable minds might differ as to whether, in particular circumstances, a person is an employee or an independent contractor. I have found that Mr Brasnovic is entitled to the benefit of s 145A(5)(a) if he believed that Mr Samardzic was an independent contractor in respect of whom no workers compensation insurance was required. That belief did not need to be reasonable, only honest. Mr Brasnovic gave evidence of this belief. I am not persuaded that his evidence on this matter was false, and I accept it.
102Mr Brasnovic is not a learned man and while he has some experience as an electrician, I accept his evidence that he believed that the steps he took meant that Mr Samardzic was an independent contractor outside the ambit of workers compensation insurance. He was ultimately found to be wrong in this belief, but having found that that belief exists, it follows that in my view that Mr Brasnovic has made out a defence under s 145A(5)(a). The contravention of Tara Electrical in not having workers compensation insurance covering Mr Samardzic was a contravention not known to Mr Brasnovic at the time it occurred.
103This decision represents a departure from the decision of Letherbarrow DCJ in Tucker. I am not bound by that decision (see Keramaniakis v Wagstaff [2005] NSWDC 14) but if in a position of doubt I should follow it for reasons of judicial comity. I may be wrong but I am not in doubt. As that decision is recent and not binding I propose to accept the long ago counsel of Vaughan CJ in Bole v Horton (1673) Vaugh 360 at 383; 124 ER 1113 at 1124, that if one judge thinks another to be in error:
" [H]e...in his own conscience ought not to give the like judgment, for that were to wrong every man having a like cause, because another was wronged before."
104If I am wrong on the test of knowledge, that is, if the five categories of knowledge recorded in the Baden decision are relevant to whether Mr Brasnovic had knowledge under s 145A(5)(a), I would conclude that Mr Brasnovic had knowledge of circumstances that would put an honest and reasonable man on inquiry (category five) but not the actual knowledge, wilful blindness or reckless failure to make inquiries which comprise categories one to three. As to category four, Mr Brasnovic was aware of facts which the Commission found required workers compensation insurance, but I am reluctant to find that a reasonable man, as distinct from perhaps an experienced lawyer, would know from those facts that insurance was required. In my view, the matter remained in at least some degree of uncertainty until the determination by the Commission against Tara Electrical.
105I should note that no argument was advanced that Mr Brasnovic bore responsibility for the liability of Tara Electrical because he was a director who acted in breach of director's duties under the Corporations Act 2001 (Cth). This decision makes no findings in that regard. The issues before me were limited to those identified earlier in this judgment.
106Accordingly, the orders of the Court are:
- Judgment in favour of the defendant.
- Plaintiff to pay the defendant's costs.